Initial Public Offerings in Brazil
This article will provide a brief introduction to the process of IPO in Brazil. The company's preparation and the procedure itself are not much different than what is practiced in other countries, so we focused on giving information about the two most important institutions that regulate the public offerings in the country: CVM and BM&FBovespa.
Registration with CVM
The first formal procedure for a company to go public in Brazil is the application with Comissão de Valores Imobiliários (CVM), the Securities and Exchange Commission of Brazil. CVM is a federal autarchy, linked to the Ministry of Finance, responsible for regulating and supervising the Brazilian capital market, disciplining, supervising and developing the securities market. Its main functions are, among others:
- Ensure the proper functioning of the exchange and over-the-counter markets
- Protect all securities holders against fraudulent issues and illegal actions performed by company managers, controlling shareholders, or mutual fund managers
- Avoid or inhibit any kind of fraud or manipulation which may give rise to artificial price formation in the securities market
- Ensure public access to all relevant information about the securities traded and the companies which have issued them
- Ensure that all market participants adopt fair trading practices
- Stimulate the formation of savings and their investment in securities
- Promote the expansion and efficiency of the securities market and the capitalization of Brazilian publicly held companies.
CVM has to ensure that the investing public has access to information of companies which have issued securities regulated by the Instruction nº 480.
The company should register as “Companhia Aberta” (Publicly-held Company) and all the mandatory information that must be contemplated in the application is listed in the CVM rule nº 480 (in Portuguese).
The CVM rule nº 480 requires the company to develop a “Formulário de Referência” (Reference Form), which is a detailed document that aims to provide the information required by the regulator for companies in the process of going public and registering with CVM. In addition to this information the company in the process of going public must present financial information as well.
Listing procedure with BM&FBovespa
BM&FBovespa (Stock, Mercantile and Futures Exchange) was created in 2008 upon the merger between the BM&F and BOVESPA Holding. Together, the companies form the second largest exchange in Americas and the leader in Latin America.
Simultaneously with the entry application for registration with CVM, the company must request the listing of its shares to be traded on the BM&FBovespa. Only registered companies can have its shares traded in the capital market. All documents filed with the regulator CVM must be filed at BM&FBovespa as well, and the revision of such information is done either by the staff of the CVM as the BM&FBovespa’s.
In the listing procedure for trading shares in BM&FBovespa, in accordance with its profile, the company must define which of the special segments of corporate governance it will adhere: Level 1 (Nível 1), Level 2 (Nível 2), New Market (Novo Mercado) or Bovespa.
The choice of segment is associated with the type of assets that will be offered, for example, a company that opts for New Market can only issue shares outstanding, as for the companies regulated sectors that have restrictions as to control, and therefore issuing preferred shares, may join Level 2.
Generally, and without considering the preparation of the company before the start of the formal process of going public (request for bid with the CVM and BM&FBOVESPA), the period between the time when the company begins the process of opening capital and when it receives the product from an offer is from three to six months. It will depend, among other things, on the level of preparation of the company related to internal controls to generate consistent information, on the availability of information to be disclosed in the offer documents and the stock market conditions.
Once the company reaches a preliminary understanding with its underwriters, the IPO process starts in full force, and the marketing of the offerings begins. This is the period during which the company is subject to CVM guidelines regarding the publication of information not in the Public distribution prospectus. The so-called “quiet period” is required by CVM Instruction nº 482 and begins 60 days before the offering registration request.